At least it's more gloom than doom

The latest GDP figures for the UK have been released and show that the economy has declined 0.2% from last quarter which means that we are now in another recession - not much of a surprise really. But at least it isn't worse. At least the decline is less than previously.

I've been more aware of the state of the economy. Getting married last year meant that I had to take on new responsibilities. Having previously lived by myself for a short while I had some idea about the cost of living, but was in for a shock when I came to realise that in reality a relatively good salary didn't go as far.

The price of food has been the most shocking thing. On average we must spend around 40% of our income on food - and most of the things we buy is the value range. (Actually it's 10% I just checked but it feels more like 40% and its how it feels that counts). We don't drink and eat little meat - because it's so expensive. I've tried being thrifty, using offal and making more homemade cakes and biscuits, but it still bites.

There are many others who are in a worse still position, hence why initiatives like the food bank have become so popular. Even our church have set up Store City which supports residents of the Borough of Barking and Dagenham.

As I see it, it will take another 6 months or so for the economy to start making positive gains - if it continues on the same trajectory. That is just based on pure instinct - but as we know, anything could happen.

Focus Topic: Is it cost effective to recycle?

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The final chapter of Landsburg’s “The Armchair Economist” provided me with some food for thought. He discusses if there is a need to protect the environment and if this will bring economic benefits.

Economics is the study of scarce resources and how people respond to incentives. The person with the greatest incentive in general is willing to pay the higher price to gain that resource. That’s why in a perfectly competitive (open market where everyone knows everything that is happening), the allocation of property rights is seen as inefficient/unnecessary. If an individual is given a property right say for example, to pollute but has no need to pollute that individual would rather sell that right to another individual who does pollute and who is willing to pay the price to obtain that right. Therefore, regardless of initial allocation of rights, whether split equally between the two individuals or not, the final outcome will always be the same.

The same can be said of recycling. Taken from a purely economic standpoint, due consideration must be made of both sides (to recycle and not to recycle) without factoring ANY moral judgements.  The side that will come out victorious is that with the greatest merits.

Here I reproduce in part, Landsburg’s argument:

“Economics is the science of competing preferences. Environmentalism goes beyond science when it elevates matters of preference to matters of morality. A proposal to pave a wilderness and put up a parking lot is an occasion for conflict between those who prefer wilderness and those who prefer convenient parking. In the ensuing struggle, each side attempts to impose its preferences by manipulating the political and economic systems. Because one side must win and one side must lose, the battle is hard-fought and sometimes bitter.” (pg 224)

A common argument for protecting the environment is for the benefit of future generations. However, Landsburg argues that “… do we have any reason to think that future generations will prefer inheriting the wilderness to inheriting the profits …?”

We must remember that in a market, there are buyers and sellers. If we stop buying something, the producer will soon go out of business which will lead to all sorts of problems including unemployment and in the case of recycling, possibly a reduction in the amount of forests as the number of trees planted goes down.

Of course we do not live in a perfect market. Among other things the deterioration of the environment could have implications for the potential of future profits .

So what do you think? Should we be recycling more? 

Will confidence get us better jobs?

One of the biggest problems that organisations have is finding the right people to do the job. With so many applicants claiming that they have the skills and experience necessary to successfully undertake a given role, how does the organisation know who is telling the truth?

One method that is used, besides the rigorous application processes and assessments now in place, is that of payment based incentives, quite common in the financial sector. Such payment structures tend to link salaries to performance. The theory behind this states that a person is only likely to take on risk to the level at which they perceive it will pay off. That is to say, if you are confident in your abilities, you will have less aversion to taking a salary that is heavily dependent on your performance. By opting for such a salary structure, organisations get information about the candidate and their ability, i.e. that they are more or less likely to achieve results.

In recent times, this approach has met with quite strong opposition because it is believed to be one of the main causes of the financial crisis. Nevertheless, maybe if we showed a bit more confidence in our abilities and are willing to take on non-conventional salaries, we may have a better chance of getting a job.  

In a podcast by Professor Ian Ayres, he refers to Zappos.com where the CEO offers recent recruits $2,000 if they want to leave the organisation.

For further information read The Armchair Economics,Landsburg. 

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